Jagat Narain, C.J. - (1.) THIS is an appeal by the State of Rajasthan (defendant No. 2) against a decree of the District Judge, Kota, dated 25 -9 -58 decreeing a suit instituted against it and against the Union of India (defendant No. 1) by the Associated Stone Industries Kota (hereinafter referred to as the Company).
(2.) THE relevant facts are that the Ruler of the erstwhile State of Kota entered into an agreement Ex. A on 2 -5 - 45 with the Company for quarrying Kachcha stone from the Tehsils of Ramganj Mandi and Chochat. Monopoly rights for quarrying Kachcha stone in these two tehsils were granted to the Company for a period of 15 years from 1 -10 - 44. The terms and conditions contained in Clause 18(1) of the agreement ran as under: In consideration of the concessions and privileges granted by the Grantor and in lieu of Income Tax, super tax and excess profits tax, the Grantee covenant to pay to the Grantor royalty on the stone excavated at the rate of rupee one per 100 sq. ft., subjected to the minimum amount of Rs. 1,50,000 - per financial year. Provided that the aforesaid rate of Rs. 1 per sq. ft. will be operative so long as the selling rate of unpolished glass does not exceed Rs. 10 - per 100 sq. ft. In the event of the selling rate going above this figure, the royalty per 100 sq. ft. shall be increased by 25 of the excess over ten rupees. The agreement was acted upon by both parties. The Rulers of Kota, Bundi, Banswara, Dungarpur, Jhalawar, Kishangarh, Partabgarh, Shabpura and Tonk formed the first United State of Rajasthan on 25.3.48. The Rular of Mewar agreed to join this Union and the second United State of Rajasthan was formed on 18.4.48. Jaipur, Jodhpur, Bikaner and Jaisalmer later on joined in and the third United State of Rajasthan was formed on March 30, 1949. Mataya Union, which was inaugurated on 18.4.48, joined this Union and the fourth United State of Rajasthan came into being on May 15, 1949 On 23.11.49 the Rajpramukh of the United State of Rajasthan agreed to accept the Constitution of India which may be framed and on 26.1.50 the United State of Rajasthan became the Part B State of Rajasthan under the Constitution. On 1.11.56 the prasant State of Rajasthan was formed as a result of the reorganisation of States.
(3.) ON 1.4.1950 the Union of India extended the Finance Act to Rajasthan with the result that the Indian Income Tax Act 1922 was extended to it. The Government of India appointed a Commissioner of Income Tax for Rajasthan. An Income Tax Officer was also appointed at Kota, who served the Company with a notice under Section 22(2) of the Indian Income Tax Act asking it to file return of income for the Income Tax year 1950 -51. The Company filed aft application under para 16 of the Part B States (Taxation Concessions) Order 1950 on 2. 4. 51. (Ex D), but the same was rejected by the Commissioner of Income Tax by his letter dated 24.10.51 (Ex. E). A representation was made to the Ministry of States, Government of India, on 17th December, 1952 (Ex. F). The Ministry of Finance (Revenue Division) advised the Company by its letter dated 29th April 1953 (Ex. G) to approach the Rajasthan Government for relief from the payment of royalty under the agreement entered into with the former Rules of Kota.;